Macau: Casino Gambling’s Sure Bet
By Warwick Bartlett
Every time I go to Macau my jaw drops as I see the number of players at the tables. Regardless of the day of week the inexhaustible supply of visitors from Hong Kong and China’s mainland can be seen in their droves on the ferries, buses and gaming tables all wanting a piece of the legal gaming action.

During Global Betting and Gaming Consultants’ recent field trip to Macau and Hong Kong one question on the minds of the people we talked to was ‘Is the current slowdown in China going to affect the revenue growth of Macau’s major casinos?’
Analysts in Hong Kong tell us that Macau’s gambling revenue and the HSBC Purchasing Manager Survey (PMS) is a better indication of China’s GDP than the official figures! 

There is a correlation between the two.
According to Morgan Stanley, since 2004 the Macau mass market revenue per visitor has shown a CAGR of 16% and China’s GDP per capita has also shown a CAGR of 16%.
So if the Chinese economy starts to slow will Macau suffer as the building of new casinos continues to add supply at a time when the market may contract?
Two projects for casinos are planned for completion in 2015, the Galaxy mega resort is one of those with a land bank of 1.7m square metres and Sands is adding 6,000 hotel rooms or 30% more capacity to Macau. 
Andy Xie in the South China Morning Post argues that China’s growth has been based on becoming a member of the World Trade Organisation and the fact that China has many young agile workers who migrated from farms and villages to work in cities in contrast to Japan and Europe’s aging populations.
Xie argues that both such benefits have now been used up. As Western shoppers can testify, China’s export boom was based on consumers willing to borrow money to spend on Chinese goods but with the credit crunch now in its fifth year one has to ask who is going to keep China’s factories busy? 
One thing was very visible in our field trip – the number of designer shops from the likes of Louis Vuitton to Chanel. Not one outlet per city but one per shopping mall or casino. These luxury shops are an indication that the Chinese aspire to high-end goods which means that wages must be rising. A further trend against China’s growth.
But does this matter so far as Macau is concerned? Probably not.
From a population in mainland China of 1.3 billion only 28 million people visited Macau in 2011. The mass market in Macau is about half that of the USA even though the propensity to gamble is higher for Macau visitors. There has to be a huge opportunity for further growth.
Macau is not an easy destination to get to. You either arrive by hydrofoil from Hong Kong or bus from China. This will change.
China’s high speed rail network will link cities to Macau. We saw a big expansion of the ferry terminal taking place and the airport which is currently under utilised is scheduled for expansion. Add to this the massive bridge connecting Hong Kong, Zhuhai and Macau due for completion in 2015 and Macau becomes more accessible to more people.
Of course there are some negatives. A partial smoking ban comes into force in January 2013. 
Initially it will only represent 50% of total floor space but experience shows that this is just the start. Smoking bans are in place in China and I expect they will want continuity in the SARs. The VIP market which represents 70% of the market is starting to decline but the casinos are gearing up to encourage more mass market, and ‘premium’ mass market players.
Competition is expected from Taiwan, Japan, South Korea and the Philippines but GBGC’s view is that there is enough for all and besides 80% of Macau’s visitors come from China and Hong Kong.
The offer to the gambler is exceptional in Macau. The hotels are luxurious and affordable. The new Galaxy offers three hotel choices, Galaxy, Okura (Japanese) and Banyan Tree where some rooms have their own pool and chef for personal dining.
The pool deck is five-star and includes a wave machine and beach. The hotel offers fifty first class restaurants to suit all budgets and the usual array of shopping plus a multi-screen cinema. Galaxy is clearly setting its stall out to attract families through a wider entertainment offer. 
I was able to see the building site of Galaxy’s new gigantic expansion where they are planning an additional 4,200 hotel rooms at a cost of USD 6.5 billion.
Galaxy along with other operators is working hard to develop non-gaming facilities and to grow the premium mass market.
Macau’s stellar growth 42% in 2011 may not be matched again and there will be some ups and downs along the way but as a long term bet Macau is still the best play in the global gambling market.
I asked Peter Caveney, Vice President of Investor Relations for Galaxy Entertainment, what was the worst thing that could happen to Macau? He replied with a broad smile, “For the Chinese to wake up one morning and decide they had lost interest in gambling.”